US stocks rise amid China markets hiatus, ECB stimulus steps

Traders work on the floor of the New York Stock Exchange. PHOTO: AFP
Traders work on the floor of the New York Stock Exchange. PHOTO: AFP

NEW YORK (BLOOMBERG) - U.S. stocks rose for a second day, as investors get a break from declines driven by China and the European Central Bank revamped its stimulus program.

ECB President Mario Draghi said the central bank expanded the scope of its monetary stimulus while lowering its forecast for euro-area economic expansion amid a slowdown in demand from emerging markets.

The Standard & Poor's 500 Index added 0.4 per cent to 1,955.84 at 9:33 a.m. in New York, after rising 1.8 per cent on Thursday. Futures earlier jumped as much as 1.1 per cent after Draghi's comments and then pared most of those gains.

"People are basically trading headline after headline right now, and Draghi's comments about raising QE was good, but then you see deflation coming and cutting the GDP forecast and that's not good," said Larry Peruzzi, director of international trading at Cabrera Capital Markets LLC in Boston. "Deflation seeping into the markets is a little bit of concern, it eats away at profit margin and it gets to be a difficult downward cycle to break."

The action by the ECB came as some reassurance to investors who have been spooked by global growth concerns. China's surprise currency devaluation on Aug. 11 sparked worries that the world's second-largest economy was headed for a deeper slowdown, roiling markets around the world.

Speculation that the Federal Reserve could raise interest rates as soon as this month, even as growth abroad slows, has added to the anxiety.

Mr Draghi's move gives the ECB's stimulus program more flexibility as officials prepare to continue bond purchases at least until September 2016. Weaker commodity prices, slowing trade and volatility in global equities have fueled speculation that more stimulus is on the way.

U.S. data today showed filings for unemployment benefits rose more than forecast to an eight-week high, representing a pause in a trend of more muted firings. Jobless claims increased by 12,000 to 282,000 in the week ended Aug. 29, a Labor Department report showed. The median forecast in a Bloomberg survey called for 275,000 new applications.

Investors will also be watching for a monthly gauge on growth in services industries. Attention will focus on the government's August non-farm payrolls report, due tomorrow, as a major data point before the Federal Reserve meets later this month.

The Fed is likely to raise interest rates this month, which will trigger a rally in equities, Bank of America Corp. said in a report dated yesterday. "If they don't hike, it's an admission that Wall Street threatens to reverse the recovery on Main Street," the firm said. Traders are pricing in the likelihood of a September rate increase at 32 per cent.

U.S. stocks rallied yesterday after posting the third-worst decline of the year on Monday. September has historically been the weakest month for the S&P 500, with the index falling 1.1 per cent on average, according to data compiled by Bloomberg going back to 1927. Leading into the month, the Dow Jones Industrial Average posted three separate single-day losses of more than 400 points in the last two weeks, a cluster of pain not seen since August 2011.